Regulation of Banking and Financial Services
The Failure Process Imposed Upon Financial Institutions
The concept of systemic risk sprung to the foreground of the public’s consciousness during the financial crisis of 2007-8 as the Too Big To Fail (TBTF) banks were bailed out by the various US Federal Government agencies e.g., US Treasury via the Troubled Asset Relief Program (TARP) and the US Federal Reserve via Quantitative Easing (QE). However, as it turns out, the concept of systemic risk is not so easy to define in legal terms—as illustrated by the difficulty in nailing down the definition by US Congress via the Dodd-Frank legislation or by the US Treasury and the Federal Deposit Insurance Corporation (FDIC) via regulation (Horton, 2012). One thing is certain—the public has no stomach for any further bailouts, thus, the era of TBTF banks and non-bank financial companies has ended.
The FDIC, under new regulatory powers granted by Dodd-Frank, will resolve systemically important bank and non-bank financial institution failures i.e., bank and non-bank financial institutions that become insolvent (Horton, 2012). This process is similar to the way that the FDIC utilizes its traditional regulatory powers to resolve non-systemically important bank failures. However, non-systemically important non-bank financial institutions continue to be able to utilize bankruptcy as an option to resolve insolvency (Smith, 2011). While the FDIC has the regulatory power to resolve systemically important bank and non-bank financial institution failures it [the FDIC] will not be able to utilize them until the next financial crisis, which means the FDIC’s primary role will be to resolve non-systemically important bank failures (Guynn, 2012).
The two ...
... middle of paper ...
...solidation in the U.S. banking industry since Riegle-Neal. Journal of Business & Economics Research, 9(9), 71–78.
Hendrickson, J. M. (2010). The interstate banking debate: A historical perspective. Academy of Banking Studies Journal, 9(1/2), 95–130.
Horton, B. J. (2012). When does a non-bank financial company pose a “systemic risk”? A proposal for clarifying Dodd-Frank. Journal of Corporation Law, 37(4), 815–848.
Morris, C. S. (2011). What should banks be allowed to do? Economic Review - Federal Reserve Bank of Kansas City, 55–80.
Rose, P. S., & Hudgins, S. C. (2013). Bank Management & Financial Services (9th ed.). New York: The McGraw-Hill Companies, Inc.
Smith, R. C. (2011). The dilemma of bailouts. The Independent Review, 16(1), 15–26.
Tasto, M. T., & Randolph, G. M. (2011). Proposed Solutions to the FDIC Deposit Insurance Fund. Review of Business, 32(1), 120–124.
Curry & Shibut (2000), The Cost of the Savings and Loan Crisis: Truth and Consequence .Retrieved July 20, 2010 from www.fdic.gov/bank/analytical/banking/2000dec.
2) Davis, Gareth. The Destruction of the Second Bank of the United States Rationale and
Foner, Eric., Garraty, John A (eds) “Banking” The Reader’s Companion to American History, Houghton Mifflin: New York, 1991., pg. 191
Block, S. B., & Hirt, G. A. (2005). Foundations of Financial Management (11th ed). The
Despite their protective and righteous purport, TBTF regime has become a significant public matter in question. Trials of effort to justify TBTF did not turn out so convincing partially because its definition has not yet been fixed. In other words, there is no set standard of “who” precisely is being bailed out and who is not, under “what” circumstances. Beyond the bound of possibility to avoid all insolvency losses of the bank, it is inevitable to make decisions to protect the chosen but not all depositors. This decision primarily relies ...
The Dodd-Frank Wall Street Reform and Consumer Protection Act’s policies haven’t really been implemented to the extent that regulators would have liked. Although the legislation takes many steps in addressing systematic risks in the United States financial system and improving coordination among regulators, some critics believe that alternative options might have been more effective. The coming years will give us a better understanding of how well the Dodd-Frank Act addressed these concerns.
Banks exist to provide people with financial security. Banks accounts allow for people to store money for saving and investing purposes. People give their money to banks in hopes that the bank will take care of their money. However, history has shown as that banks cannot be completely trusted. For example, in the days of the Great Depression. During the years of President Roosevelt’s tenure, he attempted to make it easier for people to trust banks. Still, many years later, banks cannot be completely trusted. In 2008, the financial crisis was the worst since the Great Depression, and it stemmed primarily from banks’ abuse of people. Once again, there has been legislation to keep banks from abusing
The deposit insurance fund provides security to the depositors against insolvency risk, however, it also promotes riskier behavior by insured banks – a form of moral hazard. Economic theory suggests that because insured banks have a sense of security provided by the deposit insurance, they will take on more risk by loaning out more of its deposits to try to expand operations and increase profits. This reckless behavior of the insured banks increases probability of bank exit during economic downturns. This research seeks to test whether the theory stands true by looking specifically into the banking operations in Oklahoma in the early
Cited as one of the most influential and paramount financial regulation since 1930’s, Dodd-Frank act and Consumer Protection Act was passed by the Obama Administration in 2010 as a response to the financial crisis of 2008. It is not a hidden fact that after the repealing of Gramm-Leach-Bliley Act in 1999, commercial banks again started investing in unregulated derivatives, and this unregulated and least supervised investment channels of banks led to formation of cowboy financing, eventually leading to massive carnage in the US economy in the form of financial crisis of 2007-08. Learning from the mistake of past government, and to endow a supervisory eye on investments and risk channels of the bank, the Obama Administration passed the law in order to have a sweeping impact on the delivery of financial services in the United States. Therefore, Dodd-Frank Act is a legislative proposal to reform the entire financial service industry in the United States, in order to prevent financial crisis.
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
In previous years the big financial institutions that are “too big to fail” have come to realize that they can “cheat” the system and make big money on it by making poor decisions and knowing that they will be bailed out without having any responsibly for their actions. And when they do it they also escape jail time for such action because of the fear that if a criminal case was filed against any one of the so called “too big to fail” financial institutions it...
FDIC took over the Continental Illinois then the seventh‐largest U.S. bank (Feldman and Rolnick, 1998). It is the resultant effect of the typical problem of bank runs and failure. The ...
Block, Hirt (2005). Foundations of Financial Management (Chapter 9) (11ed.). McGraw - Hill Companies. New York.
Kaiser, Emily. “Americans want limits on bailed-out banks’ pay.” Reuters. 21 Jan. 2010. Reuters. 25 Jan. 2010. .
Financial institutions, otherwise known as financial intermediaries, are establishments that conduct a variety of financial services to their customers, being individuals, businesses and/or governments. The main role of financial institutions in the financial system is to act as the intermediary between borrows and savers to channel funds from savers to borrowers. Broadly speaking, there are two types of financial institutions; depository institutions and non-dep...